Bharat Heavy Electricals Ltd (BHEL) is expected to achieve profitability in the June quarter of FY27, marking an end to an eight-year streak of first-quarter losses, according to a recent analysis by JM Financial. The public sector undertaking (PSU) last reported a Q1 profit in FY19.
The domestic brokerage projects BHEL's Q1 FY27 revenue to grow by 20% year-on-year, reaching approximately Rs 6,600 crore. This growth is anticipated to be supported by improved execution and an increasing share of new orders within its operational mix. Furthermore, JM Financial forecasts an Ebitda margin of at least 1.9% for the quarter, a significant increase of 1,172 basis points compared to the previous year.
Key Growth Drivers and Opportunities
Several factors contribute to this optimistic outlook for BHEL. The company's robust order book and improving profitability have led CRISIL to upgrade its long-term credit rating to AA/Stable from AA-/Stable, signaling a stronger balance sheet.
A significant new opportunity for BHEL lies in the defense sector. The Defence Acquisition Council (DAC) has approved a Land Based Testing Facility (LBTF) for electric propulsion systems vital for Indian naval assets. Given BHEL's extensive experience and expertise in relevant areas, it is well-positioned to be a key beneficiary of this strategic project.
Addressing Competitive Concerns from China
Concerns have been raised regarding the potential impact of the government's decision to allow four Chinese electrical equipment companies to participate in PSU tenders for High Voltage (HV) transformers and Gas Insulated Switchgear (GIS) equipment. However, JM Financial believes this competitive intensity will have a limited effect on BHEL.
The brokerage's analysis indicates that standalone equipment orders, which are most susceptible to intense competition, contribute less than 1% to BHEL's total revenue. BHEL typically secures transmission equipment orders as part of larger substation packages and integrated transmission projects, where competition dynamics differ. Additionally, channel checks suggest that a similar policy move in the critical Boiler, Turbine, Generator (BTG) segment is highly improbable, further mitigating competitive risks for BHEL's core business.